It can be easy to overlook opportunities for tax breaks.
You are recently retired.
During your working years, you understood where you could save money on taxes.
Since you stopped working full time, your tax situation has changed.
You believe your deduction days are a thing of the past.
According to a recent Kiplinger article titled “The Most-Overlooked Tax Breaks for Retirees,” this mindset is false.
You can still get tax breaks in retirement.
A Larger Standard Deduction.
The IRS offers bigger standard deductions to those who have turned 65.
The standards deduction for a 64-year-old was $12,400 in 2020 and will be $12,550 in 2021.
However, for those who are age 65 or older, the deduction was $14,050 in 2020 and will be $14,250 in 2021.
This is available without having to itemize.
This additional amount can save those in the 24 percent bracket more than $400.
Couples who have one or both spouses age 65 or older will also receive a larger standard deduction.
Medicare Premium Deduction.
You may be able to get tax breaks for healthcare.
If you leave your job and become self-employed, you can deduct your Medicare Part B and Part D premiums.
You can even deduct the cost of a Medicare Advantage plan or Medigap policies.
These deductions are not subject to the itemized medical expense adjusted gross income test.
These tax breaks are not an option for those who are eligible for coverage under an employer-subsidized health plan by: 1) your employer if you have retiree medical coverage, or 2) the employer of your spouse if he or she had family medical coverage.
Spousal IRA Contribution.
If you are retired, you are likely not earning income.
Earned income is a requirement for making IRA contributions.
If you are married and your spouse is working, your spouse can contribute up to $7,000 to an IRA you own.
This tax break is contingent on whether your spouse has enough earned income to contribute to both of your IRA accounts.
The RMD Workaround.
As a result of COVID, required minimum distributions were not required in 2020.
Retirees who take required minimum distributions in 2021 and in the future may have another method for meeting the pay-as-you-go demand.
What can you do?
You can wait until December to take out the required minimum distribution if you do not need the money throughout the year.
You can direct your IRA sponsor to hold a large portion for the IRS.
This money could cover the taxes on your required minimum distribution and your other taxable income.
This allows you to avoid an underpayment penalty while keeping your money in a tax shelter for most of the year.
Although these tax breaks may not be options for all retirees, they can certainly help if you qualify.
If you do not explore your options, then the answer is always no.
Reference: Kiplinger (Dec. 29, 2020) “The Most-Overlooked Tax Breaks for Retirees”